Preparing for ERP

Team creation

• Multi-disciplinary • Full time• Decision making power• Budget• Representative – team leads• Balance between allegiance to team and to area

of competence• Team spirit• Team awareness• Must have support from organisation

Team Characteristics

• Typical size: 25 to 60+ FTE• Team leads: 10 to 20• Functional area experts• Special roles:

– Project manager– Integration manager– Data conversion and migration– Training manager– Hardware / IT specialist– Platform expert– Communication about project (internal & external)

Collecting requirements

• Interviews with key individuals• Observation of activities• Consultation of documentation• Surveys• Targets:

– Staff– Suppliers– Customers– Other constituencies when needed (eg: vendors…)

As-Is +New requirements

Scope arbitration

• Time and cost often already decided• Time boxing used to segregate• Trade off with having to do it again next

year• Arbitrate between requirements

– Out of scope– Conflict between areas– Conflict with proposed project scope

• Steering committee (Director level)

Business Integration

• Focus on end-to-end process rather than single activity– Cross functional– Multi-competence

• Reduced autonomy • Increased communication• Increased reliance on tools• Rationalisation of process?• Benefits do not accrue where the system is most

constraining

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Workflow

Workflow

Workflow

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ERP

Module

ERP

Module

Traceability

Drill Down

Data Flow

Independent versus complementary integrationOne way versus two way integration+ see figure 16.4

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Workflow

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Example of Business Integration

• MUTAIR case study• Meals for plane travelers• Before: quality / high value service

– Culinary business (chefs in toques)– Dedicated buying– Price not an issue

• After: commodity – Drastic price reduction– MRP type scheduling / purchasing

Mutair case study

• Process integration:– p/o, receiving, issue, inventory, invoicing, accounts

payable & accounts receivable– Bulk buying from agreed suppliers– Tough negotiation on price of RMs

• But, rationalisation does not always work– 80% of jobs are OK– Rest cannot be planned (delays, change of schedule,

special meals…)

• Dysfunctional use of system => dysfunctional ERP

What can go wrong

• Integrated systems rely on actors to “play the game”– Need good perception of system

• Here, actors impeded by system– Inaccurate data entry– Physical stock VS theoretical stock– Faxed P/Os post-entered / never entered (supplier does not exist)– Ghost deliveries reached the loading bay– Either goods sent back (no stocks)– or invoice cannot be reconciled (payment impossible)– Emergency orders must be entered somehow => wrong codes used

• Overall performance of the process decreases– May keep going at local level– But overall vision is totally inaccurate

• Might as well have implemented nothing

Where problems originate?

• In preparation phase for project• Lack of managerial awareness of risks /

opportunities• Lack of understanding of how to select software• Lack of vision of the business impact• Wrong scope (eg: areas pull out and weaken

project)• Not enough money for proper analysis• Wrong team (not at the right level / too militant)

Communication

• Political / change management dimension• Internal aspects

– Expected support (we need you!)– Properly justify project (?)– Explain change in roles– Give assurances (when possible)

• External aspects– Be upfront about new rules– Adopt participative approach?– Seek collaboration / leverage other firms’ systems

• Perception of system / team

Benefit realisation

• Only occurs when definitive targets sought• Only occurs if analysis was realistic and did not neglect

downsides• May be more intangible than measurable

– Head count– Upfront implementation cost– Length of learning curve– Investment may not be exhausted by current usage (stage 2 /

ERP2 etc…)

• Whose benefits are those anyway?!?!– Case of the multi-national– Case of a dominant coalition

The ITT – more details

• Trade off between detail and speed of processing of information– Cover everything– Sample the functionality– Buy on faith

• Available in generic format (see handout)• But always better when tailor made to fit

business goals• See notion of fit in previous notes• Also prepare ITT to facilitate analysis• But some vendors will ignore the format

Other methods – Commercial presentations

• The armies of darkness….• Be prepared / ready to question• Vendors:

– Will always look good / sound good– Possible to preview software– Unlikely to be caught off guard

• Consultants:– Sound also very good– Try to ensure stable participation– Seek experience of very similar project / industry

Site visits

• Similar (completed) implementation site• Volunteered by vendor (with prior

agreement)• Very realistic

– Can talk to actual / current users– Can go down to area specific detail– Can ask about actual support received from

vendor

• But unlikely to hear a horror story

Comparing tenders

• Likely they all look good

• Need a rigid set of criteria to decide – Criteria– Type of criterion– Relative weight– Rules for computing overall score

• How many would you like to end up with?

• Decide on shortlist

Shortlisted firms

• On or off site presentation• Intense meeting• Any item unclear in ITT• Any contentious point

– User requirements– Price– Support / maintenance contract– Technical characteristics (eg: response time)

• Then leave lawyers finish it off• Don’t expect a clear cut answer• Recommend for board level decision

Next steps

• Agree on exact schedule• Freeze scope• Schedule participation of all required users /

technical staff• Communicate communicate communicate• Run awareness workshops etc…• Negotiate re-skilling arrangements• Ring fence resources and budgets• Prepare for IMPLEMENTATION

Implementation phase

• Create fine configuration of package• Define roll out strategy• Schedule implementation in phases• Organise data loads• Go live (s)• Define criteria for ramp up period (duration

to full capacity)• Measure progress and report

ERP roll outs

• Core team (global)• Local implementation teams• Roll out step:

– Initial meeting with local pm– Local team set up– Bringing local team up to speed– Understand implications of template at local level – Create additional workarounds– Define criteria for acceptance / rejection of additional

demands

Factor Input values Decision Comment

1 - Scope Global / Local Only global changes will be considered

Global changes are implemented at local level

primarily

2 - Impact on Business High / Medium / Low Only high impact changes will be considered

Difficulty in ensuring consistent reporting of impact

2a – Savings Quantified Number of transactions * time saved per time interval

See point 9 below Full justification for perceived saving must be presented

3 - SAP standard functionality Yes / No Only standard functionality will be considered

Except for “must have” additions **

4 - Support Project Business objectives

Yes / No / Maybe Only unambiguous Yes will be considered

5 - Impact on project Yes / No Only changes without overall impact on Alliage will be considered

Impact on Alliage project focuses on the impact on time of delivery of deliverables

6 - Risk High / Medium / Low Only low risk changes will be considered

trade off to point 4 above

7 – Change in SOP Yes / No / Minimal Only properly documentedAnd QMS approuved changes

Reference of QMS approuval document required

8 - Training Yes / No / Minimal Only changes with minimal training requirements

bullet points max

9 – Costs Number of man days IT Users QC

Project requirements to be checked against accumulated

usage of key resources.

In case where total resource usage goes beyond Alliage budget, steering committee may recommend scope enlargement in special cases

10 – Pay back / Return on Investment

Duration of payback period (comparison of 2 and 10)

Only changes that pay for themselves within 12 months

Also take intangible benefits into account

Training

– Design training courses and develop material

– Schedule training overall– Select and train trainers– Create facilities / sandpit– Book staff for training sessions– Coordinate training– Create assessment mechanism and

monitor progress

Data transfers into an application

• First time system implementation

• Data warehousing projects

• Database version upgrade

• ERP projects

• Move to new version

• Called a migration– From a manual system– From old to new system

Data transfers between systems

• Static data (eg. Customers)

• Dynamic data (eg. sales orders)– Additional problems with a live system

• Conversion or interfaces often required

What can go wrong

• Data not available– feature activated from implementation onwards– Massive manual data entry (?)– Eg: different account structure

• Incomplete data– Some fields are missing

• Inconsistent data (eg: engineering vs accounts)• Wrong level of granularity• Data not clean - incorrect• Most new system requires changes due to their

different data structure / activity system

Data cleaning must address

• Different department record same info under different codes

• Multiple records of same company (under different names)

• Fields missing in input tables (eg: a/c #)• Different depts. Record different

addresses for same customer• Use of different units for time periods

Labour intensive tasks

• Data entry• Data validation• Working on solving conflicts• Allocating new codes

• Solution = introduce as much automation as possible– SQL – Custom conversion programmes to extract, modify and upload

data– Filtering– Parsing (eg: excel)– Staging areas for conversion in progress

Example 1 – the supplier file

Sup code Sup name Sup address City Phone4 digits

OLD

New supplier code to include city where firm is basedAssignation of category based on amounts purchased

Example 1 – the supplier file

Sup code Sup name Sup address City Phone4 digits

Sup code Sup name Sup address… Phone Cat3 letters + 1,2,3 depending4 digits on total purchases

last year

OLD

NEW

New supplier code to include city where firm is basedAssignation of category based on amounts purchased

Example 2 – New Cost Accounting Structure

Maintenance department expenditure:1 account => separate accounts for different production activities

Intervention code Desc. Date LabourParts Total

OLD

Example 2 – New Cost Accounting Structure

Maintenance department expenditure:1 account => separate accounts for different production activities

Intervention code Desc. Date LabourParts Total

Intervention code Desc. Date labour Parts Total Account

Will data still be available? Will an archive be maintained?

OLD

NEW

Example 3: merging files

• Complete customer file based on Accounts, Sales and Shipping

OLD (finance)

CustID name address city account number credit limit balance

OLD (sales)

OLD (Shipping)

CustID* name address city discount rates sales_to_date rep_name

CustID** name address city Preferred haulier

Example 4: change of business practices

• Payment by bank draft for international customers• Automatic payment into account for national customers

• Payment direct into account for all customers

Data Upload

• Several rounds:– Trials – Static data– Open items– Dynamic data - transactions– Balances

• Staging areas– Local initially– Then central area

• Upload into live system– Specific predefined sequence (RDB)– Extract, translate, load– Rental of platform specific tools from vendor

Go live

• A single point in time• First transaction routed through system –

eg sales order• In reality loads of data already in –

incremental approach• Plenty can still wrong although not right

away• Over first few weeks – ramp up to full

capacity

Post Go Live

• Team is disbanded– Back into business– Promoted– Next wave of roll out

• Structure is permanently altered – eg: shared services• ERP team put in place

– Data experts / maintenance– Application experts – on-going developments and fixes– Platform experts – uptime– Business analysts – look to future releases and future

requirements– Typical size 20 /25 staff full time for a multinational– Various names used – eg: knowledge centre

What can happen then

• Dysfunctional ERP => uninstall

• Next phase in implementation – More modules– More sites– More interfaces to legacy systems

• Update to new version

• Merger and acquisition => change to other platform

Conclusion: the ERP community

ERP VendorsERP Consultants

Client - HQSite A

Site B Site CSite n…

External Parties:Regulatory bodiesAuditorsIndustry Experts

Conclusion: managing changePerception of staff

Time

Post-implementation

Go Live

Rol

l out

Allocation of work

Package bought

IncreasingEnthusiasm

Anxiety BenefitsBegin toappear

Business as Usual –

Low morale

Low MotivationFear

Indifferent

High InterestAnd motivation

Conclusion: Critical issues in ERP implementation

• Deciding scope of project• HRM and setting up the team (and budget)• difficulty in making a transition from an old model

to an ERP model• Preserve previous learning• overestimation of the pace of change of some

stakeholders (technical change is not sufficient)• difficulty in obtaining any direct ROI

Capabilities of the Standard Package

(Best Practice / Sales Discourse)

Stated Prioritised Business Requirements

(as per Consultant Report)Unmet Needs (Hidden Needs

Discourse)

Surplus to Needs

Actual Core Business

Unused functionalityRefocused Core BusinessLost Knowledge /

Processes

WorkaroundsNew Processes

Paradigm Shift towardsCompetive Parity

Conclusion: What happens to competitive advantage?

Is the AssetValuable?

Is the Asset widely available tocompeting

firms?

Is there a long learning curve

or specific know-how required?

Yes

Yes

YesNo

No

No

Competitive Disadvantage

Competitive Parity

Temporary Competitive Advantage

Sustained Competitive Advantage

Conclusion: Working on a stronger rationale

• Prove the need for ERP• Davenport’s questions:

– How might ERP strengthen out comp. Adv.?– How might it erode …?– What will the ERP’s effect on the org. culture?– Do we need to extend the system across all

functions?– Do we need to rollout globally?– Are there any alternatives?

Conclusion: Sales versus Needs